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Barclays May Be Positive On Oil, But Neutral On Refiners: Revises Ratings For Phillips 66, Delek And Others

MPC, VLO, DK, P.LYV | July 13, 2016

Barclays has downgraded Phillips 66 (NYSE: PSX) to Equal Weight from Overweight and cut the price target to $86 from $93, citing limited upside in shares.

"[W]e see limited upside, especially if/when refining margins rebound and offer greater valuation growth potential to its large-cap peers (Tesoro Corporation (NYSE: TSO), Valero Energy Corporation (NYSE: VLO), Marathon Petroleum Corp (NYSE: MPC) that are currently trading at steeper discounts," analyst Paul Cheng wrote in a note.

That said, Cheng noted the company's well-diversified business should be able to stand cyclical volatility better than other pure-play refiners.

Additionally, Cheng also downgraded Delek US Holdings, Inc. (NYSE: DK) to Equal Weight from Overweight, while upgrading Alon USA Energy, Inc. (NYSE: ALJ) to Equal Weight from Underweight.

Chen downgraded Delek on valuation and its continuously challenged margin capture at both refineries, neither of which show visibility toward material improvement. The analyst also slashed the price target to $15 from $20.

That being said, the analyst noted the possibilities of dropping retail assets into DKL and/or purchasing the remainder of Alon, which may present medium-term positive catalysts for the stock.

Meanwhile, the analyst has upgraded Alon USA after the company has significantly underperformed since the end of 2012. However, he cut the price target to $8 from $10.

"Although we continue to believe ALJ's refining assets are subpar compared with other larger cap refiners, the shares' poor performance has now fairly reflected the poor asset quality, in our view. We no longer believe it will underperform the sector, given its already depressed valuation," Chen highlighted.